Fulcrum Research, on behalf of Golin/Harris, surveyed 100 institutions across Europe, 36% of which invest in hedge funds, about their hedge fund investment preferences.
A total of 28% said they intended investing institutional money into hedge funds in the foreseeable future. Of the total respondents 64% were either already investing or intending to invest institutional money into hedge funds.
Most of the institutional investors interviewed were based in the United Kingdom, France, Germany, the Netherlands, Scandinavia, and Switzerland. And a total of 10 institutions were surveyed in Ireland and Italy. Golin/Harris estimated the total assets of the sample represented were more than 67% of the assets under management by European institutions.
Hedge funds were most popular with investors in Switzerland, France and the United Kingdom. Institutions in those markets were already investing 60%, 53% and 43%, respectively, in hedge funds. The strategies were least popular with institutions in the Netherlands, Germany and Scandinavia where only 10%, 13% and 20% of those surveyed said they had invested in hedge funds.
In Germany, investors were the most cautious in predicting their use of hedge funds, predicting a reliance on fund of funds approaches.
The research also shows negative sentiment toward hedge funds decreasing to 35% of respondents from 40% from the previous survey. The improved outlook for hedge fund investing in Europe may be attributable to: the benefits of greater diversification; higher returns as compared with traditional products; and the lack of correlation with regional markets hedge funds offer, the survey concluded.
But the most cited reason was the downturn in market performance during the last 12 months. “Ultimately Europe has followed the lead of the U.S.,” said one U.K.-based participant. “Additionally the equity markets are falling and so hedge funds are seen as an alternative way to make good returns.”
Although the bear market may mean more hedge fund investors, those investors will need to remain cautious of potential liquidity problems, the survey concluded.
“There will be increasing opportunities because one doesn’t have the restrictions of short-term investment,” said one Netherlands-based institutional investor in the survey. “On the other hand, if the bear market results in a reduced liquidity, hedge funds will also have a problem.”
Nevertheless, Scandinavia is a large potential market for hedge fund managers, with 70% of institutions intent on investing in hedge funds. Last year Scandinavia’s investments in the asset class doubled to 20% from 10%, according to the Golin/Harris research.
Across Europe, the average asset allocation to hedge funds is 2.29%. The most common strategies were market neutral and long/short equity, the survey said. In gauging future interest, researchers discovered market neutral was the most popular strategy moving forward.
“Hedge funds offer higher returns,” said one Irish investor surveyed. “We realize that we must be more practical and consider alternative options since the stock market is not doing so well.”
By Susan L. Barreto, Senior Reporter, SBarreto@HedgeWorld.com